By Dr. Dwight Ham, Chair of Business Administration Department
Editor’s Note: This story originally appeared in the September edition of The Mustang Connection, TMU’s official magazine.
The times that we live in are anything but ordinary, seemingly making it a challenge to plan and build for the future. It can be tough to know how to budget for tomorrow when income and security are left uncertain by economic volatility due to pandemics, employee layoffs and changes in the political climate. So, as God’s people, how should we treat our finances amid so much uncertainty?
First, we should ask our Creator what He has to say about the resources He has entrusted us with. Wisely handling our money begins by living a life obedient to God’s Word and by understanding that God owns it all — we are just stewards.
Not only does God own it all – “The earth is the Lord’s, and all that it contains” (Psalms 24:1) – but Scripture is clear as to the origin of all that we have. “But you shall remember the Lord your God, for it is He who is giving you power to make wealth” (Deuteronomy 8:18).
Whatever we do, we are to glorify God. That includes the most mundane things, like eating and drinking, along with all that He has given us to manage: wealth, talent, family and possessions.
When we master money — instead of letting money master us — we position ourselves to be used by God. With our wealth, we can care for our families and plan for the requirements of the future. We also can graciously meet the needs of others, especially those within the body of Christ (Galatians 6:10).
Poor financial decisions are often due to a lack of planning.
Handling money well includes creating financial goals and a budget to provide a valuable structure to our everyday spending. By establishing goals, we can differentiate between what qualifies as a “need” and what is simply a “want.” Financial goals should consist of saving for later life, as well as setting aside money for things like family trips, education, a new home, a rental property or launching a business. We should also plan to save for emergencies.
That last one is a struggle for many. According to Federal Reserve surveys, 12% of households do not have $400 in emergency savings. Millennials are slightly better with 16%, while Boomers are only 8%.
Things might be changing, however. According to data compiled by the Bureau of Economic Analysis reported in Gary Shilling’s “Insight,” households have been gradually increasing their savings rate since 2005 while reducing consumer debt.
One area people are generally keen on saving for is retirement. While the concept of retirement is not discussed in the Scriptures, it is wise to consider that there may come a day when working is not possible and, therefore, having a nest egg would be advisable.
It’s a good idea to start early. For example, how far would a savings goal of $1 million get you?
When you stop working, a $1 million investment account that earns a 2.5% return for less risky investments, paying $50,000 a year for living expenses, will last 28 years. If you stop working at age 70, the accumulated savings should last until age 98. If you think you will need more, such as $100,000 of income each year, double the savings to $2 million and the associated annual payments to the investment account, and so on.
At age 35, what will it take to save $1 million by the age of 70? Assuming you earn an average rate of return of 7% on your money over the period, you will need to set aside $7,234 annually, or about $603 a month. If you start at age 25 and invest for 45 years, you will need to set aside $3,500 annually or $292 a month to accumulate $1 million by 70.
If you don’t start saving until age 50 and set aside $26,000 a year in a company 401(k) or a Roth 401(k) (the maximum amount you can put in a retirement account, including the catch-up amount of $6,500 in 2021), it will take nearly 16 years at 7% to amass $1 million at age 66. Making those payment contributions to the 401(k) another four years to age 70 builds the savings to over $1.6 million.
The key to any savings plan is patience and the consistent discipline of putting aside money in the appropriate investment vehicle. Consistently saving to your investment account will allow the earnings to compound over time and increase personal wealth.
Dr. Dwight Ham joined TMU’s faculty in 2007.
Be Wary of Credit Cards and Debt
Using a credit card for expenditures can be dangerous. Most people spend more when using credit cards, so it’s easier for finances to spiral out of control. Be sure that whatever amount you charge, you’re able to pay the entire balance in full so no interest can accrue.
Some people should avoid credit cards altogether. Proverbs 22:7 gives a warning that the borrower can become the lender’s slave. Debt can easily enslave people and cause unnecessary stress within the home.
For this reason, Christians should view debt with caution. Going into debt to take trips or to purchase items that will depreciate is not advised. However, going into debt to acquire an asset that will appreciate — like real estate — is. Moreover, most people cannot pay cash for a home, and the money they spend on a home would otherwise be paid as rent.
If you are in debt, make a plan to pay off the debt as soon as practical given your income and other important financial obligations such as food, utilities and rent. Reducing debt will lower the interest costs and provide greater financial freedom once the debt is paid off.
And whether you’re making a purchase with a credit card or with cash, ask yourself the following questions to evaluate the item’s necessity: Can you afford the purchase? Is this the best buy, or can you get a better deal with a little more research? Does it add or detract from your financial goals and obligations? Can you use it, or will it get stuffed into the closet or hung up in the garage? And finally, is it a need? Or is it a want?
Have a Financial Plan
Mastering money isn’t always easy. But having a financial plan in the form of a budget will help reduce the misfortune of financial trouble in your future and help provide for emergencies. Sadly, some have no idea what they are spending and where their money is going. As earlier cautioned, this can lead to excessive reliance on credit card debt and personal loans.
I have used Quicken to track and manage my finances for well over 25 years. Through Quicken, you can create budgets for planned expenditures, such as home improvements or an investment strategy, while keeping a record of every dollar earned and spent. These records are available for me to look back on to see the money I have made and how I am investing, spending and giving the resources God has provided for our family. This history of income and expenses is invaluable in planning. Having a tool like Quicken, or some other favorite software, will make it easier to manage your money and investments while helping to prepare tax returns at the end of the year.
Whether we are spending, saving or paying down debt obligations, how we steward the money the Lord has provided us with is crucial to our spiritual growth and maturity. As stewards of what God has provided in His Word, Paul admonishes the Corinthians, “Moreover it is required in stewards that one be found faithful” (1 Corinthians 4:2). Being faithful in all areas, including our finances, is essential to the entirety of our Christian walk.
You can learn more about TMU’s School of Business & Communication, here.